Free Fall

Biswanath Muralidhar Jhunjhunwala, one of the senior-most brokers in the Bombay Stock Exchange (BSE), made a tiny but significant ‘fiscal’ adjustment to his life about a month and a half ago. He now takes the train from his Malad home to his office at the BSE instead of commuting in his Toyota Innova. The austerity measures extend to his office, too — they serve tea and snacks only twice a day instead of three times, as they did earlier.

These are hard times for everyone — what with rising interest rates, inflation and slow industrial growth — but especially so for stockbrokers like Jhunjhunwala, who have had to cope with a free-falling Sensex.

Especially since the mood was dramatically different at the dawn of 2008, as the Sensex hovered around the so-called psychological barrier of 20,000 and closed at an all-time high of 20,909 on January 8.

In those days, brokers felt as though they belonged to a privileged class. “It was as though you had a magic wand in your hand,” recalls Naresh Bhalerao, whose company, Moneylink Wealth Advisor, shifted its focus from banking consultancy to brokerage business a year ago in anticipation of stratospheric prospects. “Money was doubling in a matter of days.” Bhalerao, who lives in Nerul, cashed in by buying a flat and a shop in Navi Mumbai.

The fall was not unexpected, given that the climb was so unrealistic. While the going was good, some embraced a lavish lifestyle; the wise booked their profits. “My father sold off his positions and went abroad for a holiday in end-December,” says Sapan Patil, 33, whose grandfather started their brokerage firm some 60 years ago. “We also advised our clients to sell but not everyone listened,” he adds.

The greed factor that sets in during a bull phase meant that many brokers and most clients held on to their stocks in the hope that the market would rise even further. “Everyone made losses and I am no exception,” admits Madhukar Sheth, a mechanical engineer who succumbed to the lure of the stock market and turned broker many decades ago. “Brokers now have few orders to execute as their clients are staying away. From being very busy people, many brokers now have all the free time they want,” says Sheth. “People are worried and nervous. Sub-brokerships and dealerships are getting cancelled,” adds Rahul Nangalia, who joined his father’s brokerage firm about four years ago.

Bhalerao says his volume of business has dropped by 70 per cent while Nangalia admits his company’s revenues have been squeezed by 40 per cent. Everyone agrees that it is one of the worst crises they have ever faced. Old-timers like Jhunjhunwala and Sheth have seen the stock market go through more turbulent periods but what makes it different this time is that it is not a scam but global and domestic economic factors that are pulling down the Sensex. “It is going to be volatile for a while given that there are no easy solutions to problems like crude oil shortage or economic slowdown,” says Nangalia.

Patil says many brokers have cut down on staff strength and are delaying capital expenses. “I am trying to see if I can get employees for cheaper salaries and thinking about not renewing certain software contracts,” says Patil. “At a personal level, too, we are constantly thinking of controlling expenses. I have sold two of my four cars that run on petrol and opted for diesel ones,” he says. Nangalia has a rather different strategy: “We have issued warnings to under-performers but not sacked anyone so far. On the other hand, we have hired people. We believe that if you make your base stronger during the bear stage, it will reward you during boom time,” he explains.

The worst hit will be the new entrants and those who operate from 150 sq ft rooms in the BSE, says Sheth. “As with every major fall, many of these small operators have already gone out of business. Half the people who depend on the stock market have lost all their money while the other half have lost half their wealth,” says Sheth, who is not as active as a broker now but concentrates on his consultancy and own investments. “Till 1992, the BSE brokers were doing very well. Ever since the National Stock Exchange was established, most of the business went to it. And now, whenever the market goes up, the BSE’s share goes up slowly. But when it falls, its share falls faster,” says Sheth.

However, most brokers, like Nangalia are trying to take a long-term view of things. “In a matter of months, the market gave you the kind of returns that you expect in several years. So there’s no point in blaming the market. You just have to endure the pain,” says Bhalerao. “This is the time to take care of the customer’s capital. We tell them not to go out of the market but at the same time show them alternative investment options like government bonds and SIPs.”

What pays rich dividends during the bear phase, says Bhalerao, is transparency and good communication with customers. “Though people have lost heavily, not one customer has shouted or got angry with us. Because, whenever we give investment advice, we give them the reasons, and ultimately, it is a mutual decision,” he says.

Another measure he takes, he says, is to turn even more religious. “For one, you have more time to visit temples,” he jokes.

The other reason is that he, as well as other brokers, knows that they do not have much control over that all-important graph. “Once upon a time, the movement of the stocks used to be controlled by brokers,” says Sheth. “With the advent of foreign institutional buyers and domestic institutional buyers, brokers have no control over the stock prices.” What's the strategy then? Wait and watch the telly.